International Financial Reporting Standards_guide.pdf

Chapter 17 Financial Instruments: Recognition and Measurement (IAS 39) 197
Initial Measurement
17.4.4 Financial assets and financial liabilities are recognized initially at their fair value,
which, unless evidence exists to the contrary, is the consideration given or received (that is,
the transaction price). Transaction costs are included for all instruments not recognized at fair
value through profit or loss. Certain hedging gains or losses are also included.
17.4.5 Interest is not normally accrued between trade and settlement dates, but mark-tomarket
adjustments are made regardless of whether the entity uses trade date or settlement
date accounting.
Subsequent Measurement
17.4.6 Unrealized gains or losses on remeasurement to fair value of financial assets and
financial liabilities are included in net profit or loss for the period. However there are two
exceptions to this rule:
■
■
Unrealized gains or losses on an available-for-sale financial asset must be recognized in
other comprehensive income until it is sold or impaired, at which time the cumulative
amount is transferred to net profit or loss for the period. (See also chapter 21 and example
17.1 at the end of this chapter.)
When financial assets and financial liabilities (carried at amortized cost) are being
hedged, special hedging rules apply.
17.4.7 Impairment losses are included in net profit or loss for the period irrespective of the
category of financial assets. An entity should assess, at each reporting date, whether financial
assets should be impaired.
■
■
■
■
■
When impairment losses occur for available-for-sale financial assets (where fair value
remeasurements are recognized in other comprehensive income), an amount should be
transferred from other comprehensive income to net profit or loss for the period to the
extent that the decline is below the original cost. Impairment losses on equity instruments
may never be reversed through profit or loss. Impairment losses on debt instruments
are reversed through profit or loss.
A financial asset or a group of financial assets (for example, loans and receivables)
measured at amortized cost is impaired if there is objective evidence (which includes
observable data) as a result of one or more events that have already occurred after the
initial recognition of the asset.
When performing a collective assessment of impairment, assets must be grouped
according to similar credit risk characteristics, indicative of the debtors’ ability to pay
all amounts due according to the contractual terms.
Loss events must have an impact that can be reliably estimated on future cash flows.
Losses expected as a result of future events, no matter how likely, are not recognized.
(This conditionality appears to create a conflict with bank supervisory approaches that
require a general percentage provision for loan losses, based on empirical evidence that
such losses have actually occurred somewhere in the portfolio.)
17.4.8 Subsequent measurement of financial securities is summarized in table 17.2.